In exchange for advantageous trade tariffs, Iceland may be able to give China the Arctic influence it’s been seeking, as it supports the world’s second largest economy’s bid to join the Arctic Council.

After entering a free trade agreement on Monday, the remote and
recession-crippled Iceland is brokering Chinese Arctic access.

Olafur Ragnar Grimsson, President of Iceland, advocates in favor
of oil companies and countries without direct territorial claims to
the Arctic, and believes they should have a voice in the region’s
future.

"We realize that there are other nations in Asia and Europe
that have legitimate concerns and enterprises in the Arctic and
it's important to involve them in a co-operative effort,"
Grimsson said.

China doesn’t border the Arctic seas, but is still seeking a
permanent observer status on the Arctic Council, an eight nation
body with territorial claims to the region, including Iceland.
China’s application is expected to be accepted when a decision is
made next month.

The Arctic Council members are the US, Canada, Denmark, Finland,
Norway, Russia, Sweden, and Iceland.

Iceland provides a unique opportunity for China, as its
proximity to the melting Arctic circle (1,000 km) could open up new
potential trade routes, and possibly natural resource exploration
-gas, oil, diamonds, gold, and iron- all resources any
up-and-coming superpower should have its sights on.

If enough ice melts to create a viable shipping route, it would
cut about 6,400 kilometers (4,000 miles) and two weeks off the
voyage from Shanghai to northern European ports.

China has hunkered down heavy investment in the Arctic region,
from Russian oil ventures with Rosneft to iron-ore
extraction projects in Greenland. China has flirted with the idea
of sinking $2.3 billion dollars into Greenland to trade 15 million
tons of iron ore per year.

''It's attractive also for all the resources but China is
already a major shipping nation ... and Chinese companies are now
very eagerly awaiting policy signals from the Chinese government on
what kind of priorities they will give to the Arctic,'' said
Leiv Lunde, director of the Oslo-based Fridtjof Nansen Institute,
who was in Shanghai Monday attending an Arctic issues
conference.

China recently completed its largest embassy in Reykjavik, which
can reportedly house 500 people, and demonstrates China’s serious
interest in the area.

"China is willing to increase exchanges and mutual
understanding with Iceland and boost bilateral cooperation in
sectors such as clean and renewable energy and fisheries,"
Chinese President Xi said.

The free trade pact will lower tariffs and will boost seafood
exports from Iceland to China.

"It also signals the deepening of our relationship,
especially our economic relationship which has been lifted to a new
height," Xi said during talks following a formal welcome
ceremony at the Great Hall of the People in Beijing.

"The Free Trade Agreement (FTA) and the joint declaration
inked yesterday between the two nations bear great significance in
pushing forward bilateral relations," said Xi.

Trade between the two countries rose 21.1% last year to $180
million, according to the Chinese Ministry of Foreign Trade.

Cozying up to China

The move towards China, and not the EU is a political move of
independence away from the EU.

Iceland began its EU membership application in early 2010 but in
2012, due to overwhelming opposition and election season, the
Icelandic Parliamentary committee suspended ascension talks with
the EU. Almost two thirds of Icelanders oppose membership and less
than 25% support entrance, according to the most recent islander
poll. However, ministers keep hinting at the need to join up with
their neighboring economic heavyweight.

The Icelandic economy is still in recovery after the banking
bubble burst in 2008. Banks declared bankruptcy instead of getting
a bailout, and started from scratch, a unique path to financial
stability, that seems to be working for Iceland, as growth slowly
recuperates.

When the 2008 economic crisis hit, Iceland shocked economic
pundits and let its three largest banks fail, and defaulted on $85
billion. The stock market dipped 90%, unemployment jumped to 10%,
and most the inflation rate topped at 18%. Now that the market has
stabilized, they are looking far and wide to expand their export
industry.